Businesses seek tax break to balance wage hike

Open to a higher minimum wage

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Many Massachusetts businesses have backed off their fierce, longstanding opposition to raising the state’s minimum wage if, in return, lawmakers drop a planned increase in the unemployment insurance taxes that businesses pay and make broader changes in the jobless benefits program.

Business leaders say this “balanced approach” would probably win many employers’ tacit support for raising the pay of the lowest-paid workers.

“I think we’d be more tolerant, more accepting to an increasing cost in one area if we could point to a decreasing cost in another area,” said John Regan, a lobbyist for Associated Industries of Massachusetts, a trade group.

For starters, businesses have mounted an aggressive campaign to persuade legislators to stop an average 30 percent increase in the unemployment tax from taking effect at the end of May. If that increase is canceled, businesses would avoid paying an average of $240 a year more for every worker they employ.

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Massachusetts businesses have lobbied for years to revamp the state’s unemployment insurance system, which they say makes it harder for them to compete with companies in other states that pay less to finance jobless benefits. Massachusetts has some of the most generous unemployment benefits in the nation, and businesses in the state pay some of the highest unemployment insurance taxes.

Only businesses in New Jersey, Oregon, and Connecticut pay more, on average, according to the US Department of Labor. New Hampshire companies pay a little more than half of what Massachusetts businesses pay.

Increasing the minimum wage, meanwhile, has moved to the top of many political leaders’ agendas. President Obama has urged Congress to raise the federal minimum wage to at least $9 an hour, from $7.25 an hour.

Several states are considering increases through legislation or voter initiatives, including Massachusetts, where a proposal to raise the minimum wage to $10.50 an hour from $8 by 2016 appears headed to the November ballot.

The Massachusetts House and Senate are each considering a minimum-wage increase, but differ on whether it should rise to $10.50 or $11 an hour over three years and whether to automatically increase it at the rate of inflation in subsequent years.

Raising the minimum wage to $11 an hour in two years would cost Massachusetts employers about $838 million annually, according to the Massachusetts Budget and Policy Center. But the costs could be absorbed by minor price increases, said Representative Tom Conroy, a Wayland Democrat, while many businesses would benefit from additional consumer spending generated by putting more money into workers’ pockets.

Business lobbies such as Associated Industries of Massachusetts and the Greater Boston Chamber of Commerce are trying to leverage the issue to advance their efforts to control unemployment costs. Both the House and Senate are considering measures that would make modest changes in how unemployment insurance premiums are calculated and would lower the costs to most businesses by $400 million to $700 million, Conroy said.

Business officials concede that lawmakers are unlikely to undertake more sweeping — and controversial — changes that could lead to significantly lower costs over the long term, such as bringing Massachusetts benefits in line with those in other states. For example, Massachusetts allows workers to collect benefits for up to 30 weeks; nearly every other state sets the limit at 26 weeks.

For the time being, business leaders are focusing on getting the Legislature to freeze unemployment insurance taxes at the current rate. Without a freeze, businesses would pay more than $2.2 billion a year in unemployment insurance taxes, up from the current $1.7 billion. That would translate into an average cost of $940 per employee, up from just over $700.

“We’ll be the highest in the nation,” Paul Guzzi, chief executive of the Greater Boston Chamber of Commerce, warned at a recent breakfast program. The average cost of unemployment insurance taxes per employee in New Jersey, the nation’s highest, was $776 in 2012, according to the Department of Labor.

Massachusetts has routinely frozen the amount that businesses pay into the unemployment trust fund for the past few years, fearing the additional costs to businesses would make companies reluctant to hire and would hurt the economy.

But this year, the freeze has become enmeshed in the complicated negotiations over the minimum wage and broader changes proposed for the unemployment insurance system.

The state recently gave businesses a one-month extension to pay their first quarterly unemployment insurance bills, effectively delaying the rate increase until May 30, to give legislators time to complete negotiations and possibly enact a freeze.

Dan Kenary, the president and cofounder of Harpoon Brewery, said he supports raising the state’s minimum wage and backs changes in unemployment insurance, such as making companies with seasonal workforces that lay off employees more frequently pay more. But he said he is disappointed that the rate freeze has become entangled in political back-and-forth.

The unemployment insurance trust fund ended 2013 with a balance of nearly $700 million, and businesses do not need to significantly increase contributions this year to build the fund because the economy is improving, Kenary said.

“With businesses, there’s already so much uncertainty,” Kenary said. “It would be great if government didn’t add to it.”

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